Congress Has Its Greedy Eyes on the “Tax Gap”

The folks who have been harping on the “tax gap” these last few years seem to
have finally gotten the attention of Congress. It’s easy to see why: the “tax
gap” is being sold as free money — you don’t have to risk your political neck
by supporting a tax increase, you just have to write a little legislation,
give the
IRS some
more enforcement money, and, presto! there’s a bigger budget to play with (or
to feed the military-industrial complex’s “strategic appetite”):

Aside from just giving more money to the
IRS to
spend on enforcement, the one gap-closing proposal that looks like it’s on the
fast-track to enactment is one that would give the
IRS more
information about the basis of purchased stock by requiring brokerages to
report this information:

The
I.R.S.
estimated that it lost about $11 billion in
2001 from people who understated their capital
gains after selling stock. According to the agency’s review of tax returns
that year, a year when the stock market was
plunging and losses were more common than gains, about 38 percent of all
people underreported their capital gains.

The problem,
I.R.S.
officials said, is that brokerage firms report only how much money a person
receives from the sale of stock, not how much the person paid for it. Without
an audit, the government has no way of verifying the profits that people
report.

Nina Olson, the
IRS’s
independent taxpayer advocate, has proposed that Congress require brokerage
firms to report a person’s purchase cost as well as sales proceeds to the
government. [Rep.
Rahm] Emanuel has introduced a bill based on the idea.

Claire Wolfe has begun a serialized story in Backwood Home
Magazine that’s got my attention. The plot thus far is inspired by the
Pepperell High School students who held an uprising a few months back when the
school tried to force them to take the
ASVAB military aptitude test
(see The Picket
Line4 December 2006). There’s
also a mysterious Trickster
lurking at the margins with a gleam of
mischief in his eyes.

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